Insuring A Satellite? It's Going To Cost You

December 22, 1985|By James Fisher of The Sentinel Staff

CAPE CANAVERAL — RCA took a historic gamble last month. It sent a $50 million satellite into space with no insurance. It was the first time a commercial satellite owner had ever undertaken such a risk.

But RCA had little choice. Its Satcom satellite, launched from the shuttle Atlantis on Nov. 27, was caught in the turmoil of a satellite insurance industry stunned by recent losses. To insure the satellite, RCA would have had to pay nearly 30 percent of the satellite's value in premiums.

Only a few years ago the cost would have been about 5 percent of the satellite's value -- a very acceptable figure.

The insurance industry in general is suffering from a rash of heavy claims, but satellite insurers have been among the hardest hit. Seven satellites have been lost for various reasons in the past two years, resulting in more than $600 million in claims to insurers.

The space insurance market has reached a cumulative deficit or more than $500 million since satellite insurance first became available in 1968.

RCA's Satcom -- like the majority of those launched from the shuttle, U.S. unmanned rockets or the French Ariane rocket -- was boosted flawlessly into orbit and is now humming away, a welcome relief to its owners.

But the handful that go bad have been enough to set the industry on its end.

''The market can . . . truthfully be described as being volatile, extremely nervous, very limited in capacity and, of course, extremely expensive,'' said Glen Surles, a vice president of Frank B. Hall and Co., an insurance broker.

Surles and several other insurance and satellite manufacturer representatives recently testified about the insurance problem before the U.S. House Space Science and Applications Subcommittee.

Typically, fingers point in different directions when the question arises about the cause of this financial malady.

The insurers, a wide range of small and large companies in the United States and Europe, miscalculated the potential for loss and for a long time have been offering rates that were too low, some experts say.

''I must remind our associates in the insurance business of their own saying that there is no such thing as a bad risk, only a bad rate,'' said Albert D. Wheelon, senior vice president for Hughes Aircraft, a major U.S. satellite manufacturer.

Some insurers point a finger at companies like Hughes, which they claim are building unreliable satellites and booster rockets because of lax quality control standards.

The insurance problem ''reflects an unprecedented decline in the reliabilty of space hardware,'' said James Barrett, president of International Technology Underwriters (INTEC), the largest space insurance underwriter in the United States.

''It appears to us some of the losses of the last two years have been preventable losses,'' Barrett told The Orlando Sentinel. ''We believe the companies can do better work than shown in the losses that have occurred.''

The one aspect of the issue that everyone -- government officials, insurers and spacecraft manufacturers -- seems to agree on is that the government should not intervene to stabilize the market.

The lost satellites among the recent rash failed for different reasons, and three of the seven were recovered by the space shuttle for refurbishment and reuse. Nevertheless, the insurers had to pay the claims. They should recover some of that money because the satellites were salvaged.

The rash of satellite problems has brought about a number of changes in the insurance industry and will likely foster more. Along with the skyrocketing of rates in general, many smaller insurers have pulled out of the market and others are being more selective about what and how they will insure.

INTEC, which underwrites for about 85 companies in the United States and abroad, no longer insures a satellite itself until it has been placed in its proper orbital position and tested. However, the company will insure the launch in case the satellite is rendered unusable by the shuttle or another launch vehicle.

This means that if a satellite is launched correctly but fails to turn itself on or malfunctions during testing -- as the Syncoms did -- there is no coverage.

Such an arrangement puts more of a burden on the satellite manufacturer to provide a better product, said Barrett.

''Management incentive will be in place so that a higher level of design and assurance can be maintained,'' he said.

Hughes Aircraft wants to minimize the potential for satellite failures before the spacecraft reach proper orbit and are checked out, ''but reliability will never be 100 percent,'' Wheelon said.

As for Barrett's charges that Hughes could do better, company officials ''have taken the position they don't want to argue that in the newspapers,'' said a Hughes spokesman.

Stephen Merrett, a space insurance underwriter and an agent for a syndicate with Lloyds of London, said he wants to see how Barrett's plan works out before taking a position on it.